No, the brick and mortar store is not dead. Heres how to use physical stores
to your advantage in the digital age.
This is no easy time to be a brick and mortar retailer. Across the U.S., sales within physical
stores are at a standstill, while those of online retailers zoom along at double digits. Between
2008 and 2013, e-commerce sales grew ten times faster than in-store retail. (Exhibit 1) Whats
more, the digital world continues to infiltrate the four walls of traditional stores, where shoppers
are armed with smartphones and an entirely new set of expectations.
At the same time though, the future for brick and mortar stores doesnt have to be as dreary
as it looks. The concept of a physical store, whether at malls, downtown districts or shopping
centers, is not going away any time soon. In fact, in 2020, more than 80 percent of U.S. retail
sales will still happen within the four walls of a store.
The retailers who thrive in the next decade will be those that reimagine and redefine their stores
for the digital age. Brick and mortar retailers have enormous opportunity to leverage the distinct
benefits of old fashioned, in-person shopping in ways that digital sites can only dream about.
Tomorrows winners will be those who are able to transport the digital world into their stores in a
manner that delights customers, builds loyalty and generates brand value.
Why digitize your physical stores?
It is essential for stores to digitize in order to meet the increased customer expectations now
a reality in an always-on, whatever-you-want world. More than 60 percent of Americans
have a smartphone and 80 percent of these consumers are smartphone shoppersthey
use their phones to help them shop while in a store, most often to research product reviews,
specifications and compare prices.
The future of retail:
How to make your bricks click
Consumer and Shopper Insights September 2014
200001 02 03 04 05 06 07 08 09 10 11 12 13
02 03 04 05 06 07 08 09201011 12
Percent of all retail sales
SOURCE: US Census Bureas; team analysis
1 Excludes travel, tickets, and financial services
US E-commerce sales1
$ Billion, seasonally adjusted; Right axis percent
Compared to same quarter in previous year
In US, e-commerce continues strong growth in both dollars and share
The various interactions consumers have with digital media and digital platforms have
rewritten the arc of the consumer decision journey, causing shoppers to become
accustomed to a much greater level of convenience, choice and accessibility. The use of a
variety of online-only featuressuch as personal recommendations, product reviews from
other customers, huge product assortments and availability, and 1-click everythinghas
afforded shoppers the power to make purchasing decisions much more on their own terms.
When the doors swing open to the temperature-controlled confines of a store, shoppers
bring many of these expectations with them. (Exhibit 2)
Important or extremely important
% using service Importance to those using service
SOURCE: iConsumer 2013 RT16aa, RT16bb
Importance of multichannel functions among survey participants
% of respondents; N = 4,877
Used an online web site
the products I buy
Access enhanced online content for
product research, purchase in-store
Buy online and return
the item to the store
Buy online, but
pickup in the store
Print coupons online
use them in a store
Check online to see if the store has
a certain item available
Integrated on- and offline services going beyond multi-channel
Two decades after Netscape and Amazon were founded, more and more industries are
approaching the tipping point where digital is becoming the new normal. (Exhibits 3 and 4)
This is the point at which traditional retailers must become advanced incumbents in order
to survive. To do this they must effectively compete with online-only players by evolving
into integrated digital enterprises. Laggard incumbents, or those who do not successfully
innovate, simply will not survive.
What does it take to make your bricks click?
By uniting traditional advantages with key success elements of the digital experience, brick
and mortar retailers have the opportunity to offer consumers an experience surpassing that
of online sites. Brick and mortar stores, for instance, can provide the sort of visual navigation
and tactile experience that will be hard, if not impossible, to ever replicate online. This
holds true not just for electronics or other online-savvy product categories, but also more
traditional ones like clothing and large appliances. Nearly one-quarter of apparel shoppers
say that digital touch points are the most influential factor in the initial consideration phase
of their consumer decision journey. By marrying offline strengths with digital advantages
along three main areas, a wide range of retailers can see significant sales impact, a higher
conversion rate for customer promotional efforts, and a reduction of inventory days on hand.
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85
Electronics Comp HW/SW
Health & Beauty
Sm. appliance Books
Home dcor Home Impr.
SOURCE: iConsumer 2012
1 As a percentage of those who bought a product in the respective category in the last 6 months
While grocery and household products have remained solidly in store, nearly all other categories
have rapidly digitized in last 5 years
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85
Home Impr. Home dcor
Health & Beauty
Small appliances and kitchenware Books
SOURCE: iConsumer 2012
less research done
Stuck in store
Little meaningful online activity
and online channel has developed as impulse vs. research channel for certain categories
MerchandisingAvoid lost sales and
improve the in-store shopping experience
Retailers have great potential to optimize
their in-store product offerings in a way that
enhances interactions with customers. In our
experience, an expansion of both the range and
presentation of merchandise can double sales.
To expand the range of products, well-placed
iPads or interactive shelves offer customers a
nearly unlimited selection of itemsproviding
shoppers with added convenience. For retailers,
the endless shelf strategy provides enhanced
sales, particularly if there are products being
offered that arent readily available elsewhere. At
Amazon, for instance, a large category of niche
books that cannot be stocked by physical bookstores represents a substantial portion of the
sites book sales. While these niche books represent just 2 percent of all the titles Amazon
sells, they account for 37 percent of the sites total book sales, helping to boost category
sales by 60 percent.1
In addition to substantially expanding product offerings, interactive shelves can also give
shoppers access to helpful and valued product features. Sephora, for instance, uses iPads
to provide access to deep product content, such as whether a particular lotion gave a rash
to anyone with a certain skin type. Customers can bring products to the iPad for scanning,
which allows them to see additional information, read product reviews, or add the item to their
shopping list. These features are also available as a mobile app thats been downloaded over
1.1 million times.2
Such expanded product information also has a potential sales impact. In
restaurants that have tested digital menus, access to additional details about the restaurants
food and wine selections have led to a 20 percent increase in wine consumption.3
Digital technologies hold great promise for improving the presentation of store merchandise.
Apparel retailers, for instance, can drive customer excitement by using 3D scanning
technologies to create virtual fitting rooms that allow shoppers to see what specific items
might look like on them. This technology records a customers dimensions and contours,
features questionnaires on style preference and clothes the customer already owns, and
then creates a personalized profile that is accessible in all stores and online. Customers can
do a virtual try-on of garments for a quick comparison and also share the images with their
social network to get instant feedback from friends. In pilot programs, virtual dressing rooms
result in more than a 50 percent increase in conversion rates for first time buyers and a 30 to
50 percent reduction in product return rates vs. online.4
Customers may also continue online
try-ons at home, and perhaps at the store window during closing hours. Some leadingedge retailers have experimented with interactive mirrors and facial recognition technology
installed in shop windows to allow virtual after-hours shopping.
Virtual fitting rooms can be coupled with a personal digital assistant that makes
recommendations based on information given by the customer, the customers purchase
history, and current sales within the store. Burberry, for instance, has taken an innovative
approach to digital merchandizing by using RFID e-tags to provide customers access to
1 The Longer Tail: The Changing Shape of Amazons Sales Distribution Curve, by Erik Brynjolfsson, Yu (Jeffrey)
Hu and Michael D. Smith, 2010
2All company examples come from news articles and other public reports, unless otherwise noted.
4 NCR and TechValidate survey
additional information about its products. Scanning an item in front of a magic mirror will
call up details on how the product was crafted, along with suggestions for additional items it
could be paired with.
Innovative start-ups are reinventing the store experience to provide ultimate convenience. A
Tokyo startup called teamLab has pioneered virtual mannequins that are triggered when a
customer removes a clothes hanger from the rail. Customers can then see models displayed
on a video screen nearby in their chosen garment. In an example that illustrates how less
is more, Seattle-based Hointer has launched a fully automated mens clothing store that
allows customers to shop quickly with the help of their smartphones. Rather than displaying
a whole rack of clothes, Hointer features just one of each item. To select the item in the size
they want, shoppers scan QR codes using their smartphones. Items are then delivered to
their changing room using German robotic technology. The apparel can be purchased while
the shopper is still in the fitting room by swiping a credit or debit card on a tablet kiosk. In
addition to the streamlined digitized experience, this model also reduces the need for shelf
and floor space and opens up new modes of attractive product presentation.
MarketingUsing digital data to reach
When existing customers enter a store, they are
often eager, typically at an unconscious level, to
be wowed by a compelling brand experience.
It is important that retailers seize upon this
opportunity, and digital technologies offer many
new and strategic ways to do this. Retailers can,
for instance, give shoppers who enter a store
their own personalized offer of the day. After
identifying existing customers, specific offers
could be sent to their phone or displayed at a
welcome terminal that also gives product info,
online reviews and a Facebook/social product
finder. The purchase of the product on offer
would be enabled through a 1-click check-out
with the customers information already filled in. The customer could then choose immediate
carry out or delivery when you get home. This sort of marketing effectively combines
the stores haptic brand experience with the benefits of the targeted and personalized
promotions found online. New customers can also be engaged by this system and offered
quasi-personalization through a back-end process of identifying their statistical twins.
Macys for instance, has partnered with Shopkick to install iBeacon transmitters throughout
several of its stores. In this trial, customers who enter a store with the Shopkick app
installed on their phones will be alerted to various rewards, deals, discounts and product
recommendations. The technology enables shoppers to be shown products they had
previously liked while browsing the web, when in the vicinity of that product in the store. It is
important that this type of precision marketing be done correctly in order to avoid alienating
shoppers. If executed with finesse and relevance, these campaigns can be very effective.
The Guatemalan shoe store Meatpack certainly found that to be the case. In order to avoid
losing customers to competition, the company introduced an app that pushed warnings
to customers cell phones whenever they entered the store of a competitor. The app
then immediately offered timed discounts counting down from 99% until they reached a
Meatpack store. According to the retailer, this app managed to steal at least 600 customers
from the competition over the course of a week. Whats more, the bold idea also won the
brand a lot of free publicity.
Other retailers are using digital technology to enhance their marketing efforts within various
aspects of store real estate. For instance, adidas has introduced interactive storefront
windows where bypassers can discover and explore products that are displayed in the
window. Via a touch screen, a URL and a personal pin code, desired items can be saved
directly to a customers phone. This technology has drawn a significant number of shoppers
into the store, with 25 percent of those who try it entering the store afterward, and 90
percent of bypassers watching while the storefront was used by someone else.5
The key variable to effective marketing will be the creative and strategic use of customer
data. An example of how companies have used digital technologies to create compelling,
personalized customer offers is airlines. One U.S. carrier, for instance, had a process for
managing and executing multiple targeted micro-campaigns. These travel promotions
were segmented by loyalty status but lacked any deeper segment orientation, and the
destination offers were largely generic. It was only when the airline started leveraging its rich
historical flight data that they were able to drive incremental trips. It did this by segmenting
customers based on how they buy, how they fly, and how they engage with the airline and its
partners. Drawing from this, the airline started offering individual recommendations based
on algorithms that determined what destinations a customer had the highest propensity
to fly. These Next Place to Fly offers communicated highly relevant and personal
recommendations to customers along with the more standard discounts. As a result, the
airline experienced a 6X boost in its booking response rate from these offers.6
By digitizing operations, retailers have the
opportunity to combine the immediacy of
store purchase/pick-up with the supply chain
excellence of online. The (BOPS) both enhances customer
satisfaction and increases traffic and crossselling in physical stores. For shoppers, it is
becoming an expected feature37 percent say
they have used BOPS, with about half of those
rating it as important or extremely important.
The ability to buy online and return to the store is
slightly less utilized (25 percent of shoppers) but
highly valued by 69 percent of those who use it.
For retailers, BOPS can be a sales tool. When
customers see that products are available for purchase or pick up in stores, they are more
likely to visit and perhaps do additional shopping in those stores. One national U.S. retailer
thats a pioneer in BOPS, for instance, saw a 1.8 percent net sales increase after their BOPS
implementation. Online sales declined by 1.8 percent when some customers decided to
close their transactions after seeing the product available in stores. But this was more than
offset by a 3.6 percent increase in offline sales due to the transfer of online sales to physical
stores and cross selling from the additional traffic in stores.7
The supply chain excellence and real-time inventory data that BOPS requires also improves
stock management and increases inventory turnover. Apples inventory days on hand, for
instance, has declined from 7.5 in 2008 to 3.4 in 2012, a drop of 55 percent.
6 McKinsey pricing practice
7 Integration of Online and Offline Channels in Retail: The impact of Sharing Reliable Inventory Availability
Information, by Santiago Gallino & Antonio Moreno, 2012
Physical stores, too, can benefit from optimized inventory management. Pushing low stock
turn products to the online channel can cut down on inventory and improve working capital.
Gap is doing this with a new feature called Ship From Store. The option lets online shoppers
buy directly from store inventory, accessing items that might otherwise go to markdown.
The feature allows Gap stores to keep their shelves stocked with the right items while also
meeting the growing inventory fulfillment demands of the companys e-commerce channel.
The path ahead
Retailers who digitalize all steps of the customer journey are awarded with higher revenues
and greater operational efficiency. Yet today, no stores combine all these elements for
digitizing the in-store experience and engaging customers in omni-channel journeys. There
is significant future potential. Digitization should be done gradually, first rolling out basic
features and then testing new and more fundamental digital concepts through pilots in
selected stores. Ultimately the end goal is an integrated, fully clickable and personalized
in-store experiencethe sort that customers have come to expect in the 1-click online age.
Pascal Grieder and Raphael Buck are principals in McKinseys Zurich office, where Veit
Kment is an engagement manager. Francesco Banfi is a principal in Paris and Jil Fitzner is
a senior associate in Berlin.
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